Djerriwarrh Investments Limited (ASX:DJW) has announced that it will be increasing its dividend on the 23rd of February to AU$0.068. Based on the announced payment, the dividend yield for the company will be 3.8%, which is fairly typical for the industry.

Check out our latest analysis for Djerriwarrh Investments

Djerriwarrh Investments' Earnings Easily Cover the Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Djerriwarrh Investments' dividend was only 70% of earnings, however it was paying out 106% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

If the trend of the last few years continues, EPS will grow by 4.0% over the next 12 months. If the dividend continues on this path, the payout ratio could be 59% by next year, which we think can be pretty sustainable going forward. historic-dividend

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the dividend has gone from AU$0.26 to AU$0.14. This works out to be a decline of approximately 6.3% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Earnings per share has been crawling upwards at 4.0% per year. Djerriwarrh Investments is struggling to find viable investments, so it is returning more to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Djerriwarrh Investments' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Djerriwarrh Investments (1 is a bit concerning!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.